Archive for September, 2008

Fannie Mae and CBC Sitting in a Tree, K-I-S-S-I-N-G

September 30, 2008

Here’s hard proof that Fannie Mae and the Congressional Black Caucus, a group composed of liberal democrats, including Obama, are connected at the hip. The democrats provided cover for the fraud that Fannie Mae pulled on the American investors and banks and the predatory loans that Fannie Mae encouraged banks to make. (link)

Fannie Mae’s goals seemed noble, at least on the outside. After all, isn’t it a good thing to get people owning property and homes and to own a piece of America? Their methods were flawed.

The way to get more poor people into homes is not to give them loans they cannot afford or lie about their ability to pay those loans. The secret is to make the poor rich or make homes cheaper or both.

How do you make the poor rich? You free the economy from regulations and taxation that is a burden. If companies have more money, they hire more people, they sell more stuff more cheaply. A rising economy benefits everyone, provided that the rising isn’t done on the backs of the taxpayers. We see from every example of a freed economy in the history of the world that the poor benefit the most. From the lowly serf-slave in Japan, to the landless conquered Hong Kong natives, to the British serfs, we have seen free market economics make the poorest people into the richest people in the history of the earth.

How do you make homes cheaper? You build a good infrastructure, meaning roads and highways, connecting communities to other communities, allowing land farther and farther away from the center to be used for building homes because people can move to and fro as they need to. You allow builders to do what they do best, finding the best materials at the cheapest prices and putting the best labor to work to get the job done as quickly and as efficiently and safely as possible.

You don’t regulate the industry so that only a handful of people can even understand half the regulations on the books. You don’t restrict the building of roads and freeways in the name of the environment. You don’t go around imposing stupid conservation efforts that actually cause more harm than good.

Democrats wanted to help the poor by changing the laws of nature, and making banks do things that make banks fail. Well, it didn’t work, so they resorted to companies like Fannie Mae to outright lie about what they were doing and obscure the facts that they had loans that would not be paid for. At the same time, they tried to raise taxes and increase regulations and keep homes from being built and keep the infrastructure of the United States stuck in the 70’s. The prices went up, poor people were shut out of the market, and their only way in was with loans they could never repay.

Folks, there’s a lesson here, and the lesson is that when government tries to solve a problem with more government, it only causes more problems. It would’ve been far better for the average poor person if government had stepped away from this game a long time ago. In Reagan’s words, “Government is not the solution. Government is the problem.” This is true here just as it has been everywhere else.

My Take on the Bailout

September 30, 2008

I am now fully against President Bush, Secretary Paulson, and the Wall Street Journal editorial board on this one issue.

We will not use the federal government as a banking backstop. If you step up to bat in the market, and strike out, you have to go back to the dugout. If your team loses the game, you have to go home.

I will not use taxpayer dollars to keep the rich rich. When they screw up, they are supposed to become poor. That’s the free market.

And President Bush is right. The free market has failed because the “free” market is trying to fleece the American taxpayers. That’s not free market economics. That’s called exploitation of the American taxpayer. Free Market economics is when rich people invest in Fannie Mae and lose their shirts when Fannie Mae lies about what they own. That’s the free market.

“Fleece in Our Times”

September 30, 2008

Thaddeus McCotter (R-Michigan) explains very carefully why conservatives do not want to rush to “invest” American taxpayer dollars to solve a problem that Wall Street brought on themselves.

Listen to it all. And then vote for fiscally conservative republicans on Nov. 4.

What Happened with the Bailout Bill

September 29, 2008

The Bailout Bill, as you have already heard, was defeated. The Dow dropped over 700 points. Surely not the disaster we were promised, but still notable.

Why did it fail? The simple answer is that too many democrats voted against it and not enough republicans voted for it. The more complex answer is that McCain and the republican leadership came up with a Plan B that didn’t involve frisking the American taxpayers that was rejected by the democrats. So even after Pelosi et al did all they could to bend over backwards to accomodate the republican leadership, they couldn’t get the republican caucus on board, and drove away too many of their own caucus.

The Dow drop indicates that this is hardly the disaster that Paulson and Bernanke thought it would be. American industry took a hit today, but it is not fatal, and it barely even stings. After today, I bet the republicans are wondering why they even needed a Plan B if letting banks fail wasn’t as disastrous as the Fed made it out to be.

I do believe that investors and businesses in America realize that banks really aren’t the core industry. It’s okay to see the biggest banks go down in flames the same way it’s okay to see the top manufacturers or retailers or chemical or oil companies go belly up as market conditions change. It’s a positive sign, really, to see companies fail. After all, we can’t all be right all the time. We make mistakes, and someone has to pay for those mistakes. We can keep these failing companies (and banks are only companies) propped up at the expense of everyone else, or we can let the market work its magic and take out the trash when it has thoroughly been trashed.

There are going to be criminal prosecutions. When you lie about what you own and what you don’t own, you go to jail. That’s one position that President Bush and the Bush administration have been firm on. And so Obama’s associates in Fannie Mae and Freddie Mac and other banks are likely going to go to jail for what they have done by exaggerating their assets. Remember that was the ultimate cause of all these problems: banks really wanted a way to create crap mortgages and pretend like they weren’t crap, and Fannie Mae and Freddie Mac did that for them. Up until that point, banks were honest about the loans being crap, and planned accordingly.

John McCain can really come out of this one smelling like roses if he owns the defeat of the bill. First, he’ll be distancing himself from Bush, something he’s been all too vocal about for the past 8 years. Second, he’ll be taking the conservative and populist stance against bailouts. Third, he’ll come away looking like he really has been in power, while Obama is powerless.

I honestly didn’t think that the handful of conservative opponents to this bill would be able to stop it. I am surprised yet again by how quickly conservatives organize and get their message out and stop things when need be.

What really caused the situation today?

September 27, 2008

Here’s the bottom line.

First, President Carter and the democrats wrote a bill that told banks to make bad loans to people who couldn’t pay them in an effort to get more poor and irresponsible people into homes. This isn’t the way to get more people into homes. The way is to make the poor rich or the cost of homebuilding cheaper.

Second, President Clinton and the democrats told banks that if they want to be on the “A” list, they have to make a whole heckuva lot of these loans. The banks had to play ball. House prices jump up. The vast majority of home loans are made to people who can’t pay them.

Third, Fannie Mae comes on the scene and basically gives the green light to all the banks to go hog wild with these bad loans, since they are lying and cooking the books and making these loans seem better than they are. The housing market goes WAY up, and now the ONLY loans people are getting are bad loans they can’t pay.

Fourth, when President Bush and Sen. McCain call on congress to expose the lies and stop the lying, the democrats in congress kill it since they are on the take, in more ways than one. Near the top of the list of democrats on the take is Sen. Obama.

Fifth, when the house of cards that Fannie Mae built up comes tumbling down, so do the banks. Now we are left, as a nation, to clean up the mess in a way that won’t hurt everyone else. And those people who received the loans insured by Fannie Mae are left living in home they cannot pay for, in a worse position than they were in before this whole fiasco.

Bottom line: Democrats tried to use government to make the market more “fair”. They ended up hurting the people they were trying to help, corrupting their own party, and destroying the market altogether.

Way to go, guys. It pays to listen to people like Milton Friedman and Adam Smith. But when you don’t pay attention to economists who actually make correct predictions, you should at least pay attention to a president who understands where money comes from and how markets work and what the current financial situation is. And when you ignore that president, you’d better listen to the senator who can smell a rat when he sees one. You could’ve avoided this mess, and the inevitable blame, if you just paid attention and decided to err on the side of the American people. Instead, you let the money do the talking since it shouts louder than the voice of common sense.

Democrats are busily waving their hands, trying to keep the American people from seeing the pile-up on the interstate they caused. They had the beer in their hands, it was their pickup truck that was going a hundred twenty on the freeway, the passengers in the back of their truck are all going to the hospital, as well as other innocent travellers. But, just like drunk drivers always say, “I wasn’t driving.” “I was driving but I wasn’t drinking.” I was drinking but I didn’t cause the accident.”

Japanese government officials just as incompetent as American counterparts

September 27, 2008

If you’ve ever thought that the USA had a monopoly on incompetent government officials, you haven’t traveled very far outside the country.

Ryan Ginstorm, an indepent translator who lives in Japan, comments on a health official who assumed his 2-year old son was mentally retarded since he called a young dog a “puppy” and a young cat a “kitty”. (link)

Government, by its very, non-competitive nature, is incompetent. The people who gravitate towards government jobs are largely unable to compete in the real business world. (There are, of course, exceptions, and we can readily identify those by their lack of popularity among government circles.) Government itself only maintains its power with the threat of force, a compromise we the people allow since we see the benefit of having an incompetent legal entity who can use physical force as more important than its inevitable costs.

After all, we can’t have two independent governments, one right next to each other, competing for the right to pay taxes to them and the right to throw criminals in prison for life. See what happens if you try to setup a competing government in your state and see how far you get with that.

People who think government has some magical property that transforms all of its initiatives and workers into angels sent down from the throne of God to serve man are deluding themselves. Does winning an election fundamentally change the nature of a man? Does having your job funded by the extortion of taxes from hard-working and passive citizens mean you will automatically be a better person? Of course not. It’s absurd to think so.

Even in business, where competition drives the most incompetent out of the market, leaving only the least incompetent in control, and where natural market forces can thrust entire industries into the dustbin of history, we are faced with consistent and wonderful examples of incompetence. And in government, where the only force that can drive incompetence out is the rare, bi-annual election process, and even then, we are lucky to get people that are not completely insane running our government, how can you expect more?

The problem isn’t that people are incompetent. The problem is the system that allows incompetence to survive, and feeds it like a cancer. That problem is found in government. I certainly understand the position of people who want to throw government out in its entirety as a failed experiment. But I still believe having a big guy around who is ready to jump on certain people on a moment’s notice and kill them if necessary is a good thing, especially the American form where we keep that entity chained head to foot and beaten into submission every few years in humiliating elections.

Reagan said, “Government isn’t the answer to our problems. Government is the problem.” As I mature, I see that as more and more true every day.

How to solve economic crises… for good.

September 25, 2008

Here’s a real plan to solve the economic crisis, for good.

What is the real worry about the banks right now? That they won’t be able to make loans and keep the money supply up. Well, there’s an easy solution.

Congress can simply authorize the president to print money based on nothing and then put that money into the economy. If congress puts the right amount of money in the economy, we don’t need banks to inflate our money supply. And I think after 80 years of experimentation, we have got the formula down pat for getting the money supply right, or close to right.

How does congress manage the money supply? By spending. If we need more money in the economy, congress authorizes more spending or lowers taxes or both. If we need less money in the economy, congress spends less or raises taxes or both. The spending deficit is simply how much more money is going into the economy each year.

And since money, especially in an expanding economy like ours, tends to increase in value with all things being equal, congress will have to spend a lot more than it takes in to make sure that the value of money just stays the same.

If congress spends too much money, we get inflation. The value of our currency declines. Money is too easy to come by, and the prices of goods and services start to go up. The response to this kind of problem is to raise taxes, thus removing money from the economy, or to slow spending. Since the people will be suffering from inflation, they will ask the congress to do one or both of these things.

If congress isn’t spending enough money, we get deflation. The value of our currency is increasing as prices are falling. People refuse to spend their money because if they wait a little longer they can buy more tomorrow. In order to fix this problem, congress needs to spend more or lower taxes. The people will be suffering in this scenario, and they will ask congress to do one or both of these things.

A happy equilibrium can be reached, and with low enough spending, we can have a functioning federal government without any tax revenue. That is, the total operation of the federal government can be funded only by the necessary increase of the money supply each year.

This would certainly be a boon to the people. Let me list the ways.

First, we would live in a society where we aren’t heavily burdened by taxes. What we earn is ours to keep and spend as we see fit. We can, as individuals, redirect the economic activities of our country as we see fit since we control where our money goes. We can even build up a savings account for retirement, or invest in our nation’s enterprises by buying stocks and bonds. Or we can spend our money on saving the environment or helping the poor and homeless.

I personally believe that if we didn’t have our taxes so high, we would be enormously productive. That is, our corporations would be posting insane profits, our employees would be making insane wages, and our prices for goods and services would drop to insane new lows. This is because of the natural tendencies of the American people to make money and be productive. There would be more money available to charities and environmental programs than there is today.

Second, we wouldn’t rely on a handful of powerful people to control our money supply. As it is now, we are trusting the chairman of the Fed and a few powerful CEOs to make sure that we have enough money to go around, and not too much. We have seen in the past how they have made mistakes or abused their power. I’d rather put that kind of awesome power in the hands of a government that is servant to the people.

Third, we wouldn’t live in a society that relied on debt to expand its money supply. Rather than living by taking out loans or using credit cards, the American people would have an incentive to live based on what’s in their bank accounts and thus accumulate real wealth. Banks would be incapable of loaning money out to anyone but the most trustworthy and for nothing but what we might consider a high rate today. The reason is because banks can’t use fractional reserves to loan out what they do not have. Debt simply isn’t a preferred option.

But don’t fear! There are really two sources of money when you don’t have any. One is to borrow, promising to pay in the future what you don’t have today. The other is profits, turning what you have into something that is more valuable than what it was. Since the first option is really deferred profits, or a promise to be profitable with some of those profits going to someone else, it is much better to live by the second method. If we encouraged people to produce now and consume later, they would live better, happier, more financially satisfying lives.

The beauty of this plan is that congress can say, today, “Let the banks fail because of their stupid investment choices.” Then, in the same breath, they can say, “Do not fear, there will be plenty of money coming, and it will be free money, free as in non-debt money, free as in liberty as in the people of America are free. We will start issuing that currency as the banks are incapable of doing it themselves, and we will do our best to make sure there is neither too much or too little.”

Of course, all the banks in the world will oppose this plan, and as in the past, will use nefarious tactics to try and keep Congress from issuing currency at a rate that will benefit the American people the most. But as the world’s sole superpower, we hardly have much to fear from the banks. If congress will simply issue enough currency, as much as the Fed would have, then we will be fine. If the banks try to inspire other countries to war, we can easily out finance them by issuing appropriate amounts of our own currency. This is because their currency comes at a the cost of two taxes: the interest rate which the country must pay to secure the loan, and the inflationary effects of introducing more money. Our money comes with only the inflationary, natural tax, and not the tax of interest.

Another beauty of this plan is that this is a plan that I believe democrats and republicans alike can get fully behind. We may disagree about how to spend the money, and how to tax the money, but we will agree on how much. We will agree that it is better to keep control of the money supply in the hands of the people rather than a few individuals and banks.

Perhaps under this system we will see the two parties align as an inflationary party and a deflationary party. One party will exhort raising spending and lowering taxes. The other will exhort reducing spending and raising taxes. When the people are suffering from deflation, the will elect the inflationary party. When they suffer from inflation, they will elect the deflationary party. Wouldn’t that be a nice political environment to have?

Thoughts on “The Money Masters”

September 25, 2008

I’m watching The Money Masters, a documentary on the evils of the Fed and central banks. It’s pretty interesting for those of you who are really interested in money. It’s assertions are pretty controversial and non-conventional. There isn’t a lot of hand-waving, however, and everything is carefully explained.

Some of the core concepts that the film tries to pound into the viewers head are pretty plain and important.

First, money is whatever we agree money is. Fiat money, or money that is based on nothing, are just as good as money based on gold or silver or anything else.

Second, Money is critical to society and economy. Without enough money, the people are poor. With too much money, the people are poor. But there is a magic medium whereby everyone is able to participate in the economic system and unemployment all but disappears. People want to work, they want to buy and they want to sell. The right amount of money makes this easy, almost effortless. Too much or too little money make it expensive to trade and buy and sell.

Third, banks manufacture money it out of thin air, or out of deception depending on how you look at it. They issue currency in the form of loans to their borrowers, and then collect interest on those loans. The currency they issue is based on what the banks have deposited, but as we see with the Federal Reserve, you can issue loans just fine if you aren’t backed by anything.

Fourth, banks compete one with another. This all balances out and people end up using the money that fits their needs the best, and so banks have an incentive to make their currency worth the most and thus carefully moderate how much currency they issue.

Fifth, banks can and do aggregate their efforts to maximize their profits. When banks work together, coordinating their efforts, they can create deflation and inflation on a whim. Deflation leads to depression since there isn’t enough money for people to buy and sell with each other. During the depression, the banks buy up what they can and then allow the economy to expand by issuing currency once again.

Sixth, national banks get their power by having the government give them a monopoly on the money supply. In short, no other bank can issue currency that can effectively compete with theirs. With this power, they can very easily manipulate the economy to help or hurt individuals within that economy. There is no incentive for the national bank to regulate the money supply in the interests of the people.

Seventh, and this is the really interesting point, the United States at several points in its history has been at open war with the banking industry. Americans knew at the time that governments can just as easily issue currency without the banks, currency that isn’t built on debt to a bank. This money is regulated by political, not private, interests, and thus the people have control over how much money there is. Obviously, this wasn’t a perfect system since people didn’t always understand inflation and deflation and what causes it and how to avert it. But it worked surprisingly well, in fact much better than any American national bank.

After watching this film, I don’t see the banking industry in the same way anymore, nor do I see my money as I used to.

I have come to believe one thing, however, and that is that we can’t trust the nation’s money supply with anything but the people. It is too important and too easily manipulated with devastating results. Politicians and statesmen in the past understood that the power of money was far greater than the power of warfare, and understood that to keep such an awesome power in the hands of a few individuals exposed the nation to tremendous risk of being exploited by those individuals.

What’s very interesting is that solving today’s banking crisis is actually pretty easy. I’ll write about this in a later post.

I would like to see a videogame

September 22, 2008

Remember playing “Lemonade Stand” back when you were a kid in elementary school? Maybe I am dating myself, but for those who didn’t have the opportunity to play it, Lemonade Stand was a simulation of what it takes to run a lemonade stand. Before each day, you had the weather report. You could set your prices, choose how many lemons, cups, and how much sugar and ice you need, and then put together your recipe for the day. When you were all set, you pressed “Go” and you could see how many sales of lemonade you made that day. Most importantly, you could see if you made a profit or ran a loss. Of course, the goal of the game was to make a profit.

This game was only a game but it taught me a great deal about what capitalists like myself face everyday: uncertainty. I am sure someone could sit there and figure out the algorithm to win at Lemonade Stand every time, but I know that would take a lot of time and probably a lot of money lost on the stand. And once that algorithm is figured out, I feel it is perfectly honest if he games the system to make millions.

I also know the real world isn’t nearly so algorithmic. Finding an algorithm to describe a real-life situation is a miracle. Sure, we have books and books of algorithms that detail all kinds of real-world phenomena, but on the grand scale of things, having an algorithm, and extremely accurate and useful algorithm, to rely on in any situation is the exception.

There are people out there who make their living dealing with risk. They buy and sell it like gold or oil. They take risky things and convert them into less risky things by combining them with other risky things. Like chemists in a lab, or physicists with a brand new particle accelerator, these are part scientists and part businessmen seeking out new algorithms and trying to make money where no money could be made before. I salute these people. When they drive by in their brand new Ferrari, I honestly feel happy for them that they were able to work so hard to learn so little yet make it worth so much.

My stock and trade isn’t security risk. It is software project risk. It’s the risk that I’ll sit down working on a problem for an hour and not only make no progress, but realize we have far more work to do than before I sat down. It’s the reward, however, of writing software that actually makes money and puts cash in our company’s bank. It’s a different kind of risk, far less predictable but manageable in its own way.

I would like to see a videogame where you run a bank. And rather than the traditional bank where you take deposits and loan out the money, it would be a modern bank where you have to not only buy, sell, and trade various securities, but you have to hedge against certain market conditions. And not only that, but you have to be able to put together new securities from existing securities. And you have to do this all the while mindful of who’s in congress and the White House, wary that they’ll bust your bank if you get too good at what you do.

Of course, such a game would be endlessly complicated. If you could actually succeed at such a game, you’re better off starting your own bank. It’s be a better waste of your time.

But perhaps such a game can help people who don’t understand the banking industry respect those who do a little more. Just like we appreciate the people who grow our food, secure our borders, make our clothing, build our homes, and so on, we need to appreciate those who fight inflation and deflation at the same time, create money from thin air with seemingly magical incantations, money that ends up in our pockets as payroll or inventory.

Our modern society simply cannot exist without banks doing the dirty work of managing our money. Back in the late 19th century, banks were still archaic and stuck to old incompatible conventions. As the economies in Western Europe and the United States began to grow with unpredictable extravagant progress, banks simply refused to create the currency needed to help people make payroll. And what happened was a lot of people were out of work that could have and should have been employed. And many towns went almost without cash altogether, resorting to much more primitive methods of trade.

It is because of our modern banking system that we can experience rapid growth and not see our economy collapse under its own weight. We can mitigate the inevitable cycles of business. We can plan more than a few hundred days in advance, and actually see those plans realized.

A lot of conservatives would like to see the federal government rethink its role in our capitalist system. They would have the government stop participating and merely stand as the referee, keeping score and keeping criminals off the playing field. Many other conservatives believe that limited government intervention is necessary, to provide the “last resort” to prevent catastrophic market cycles. I’d prefer we played by Adam Smith’s rules, personally, but unfortunately I’m no expert in this particular area and the experts tend to agree that some intervention is always necessary.

There is some good news to all this, however. Please note that when the federal government spends a dollar, that dollar isn’t coming from your pockets, especially when it is used to buy something that can later be sold or that will mature. The dollar that is spent actually comes from China or India or Japan, or any of the other countries who would rather invest in our debt than in their own debt.

It is very likely that when this is all said and done, when all the mortgages we buy mature, that Uncle Sam will have made a pretty decent profit on the whole shebang. We taxpayers may have insured the transaction, but we only had to put in our word and in exchange we got hard cash.

Have you seen this man? He’s been missing for quite some time

September 21, 2008

Who is this man, and where did he go?

Did the democrats honestly nominate a guy who said those things?